If any of that happens one can reconsider their thesis and exit the stock. It pays to be reactive in investing rather than proactive. And this is difficult because the human brain is wired to constantly be proactive and look for potential threats. This is true from the cavemen days.
KRBL launches two new products.
Let me confess I am far from being a brand expert. I happened to have some astounding experience with respect to brands up close while working with P&G.
With that caveat,
I would prefer Dollar shave to Gillette anytime. Gillette is expensive for me. But is that a reflection of a larger undercurrent that brands are no longer a moat? No.
These questions keep coming up from time to time, every generation. For instance about 20 years ago a book called No Logo made a big splash in the brand world and outside.
My simplistic model of how a brand works is best explained with Daniel Kahneman’s System 1 and System 2 (please refer Thinking, Fast and Slow). We always want to minimize System 2 and maximize System 1 usage. Branding does that, once you, as a consumer, do your System 2 work and decide on a brand, then System 1 takes over. Now if you own the brand, you want it that way for the consumer. The consumer will also not want it interrupted because System 1 will then call System 2 and that is effortful. Especially if you are a woman buying 100 - 150 brands monthly each of them small sums.
So System 1 works fine even with minor pricking - ‘it’s OK if Dove is a little costlier now than last year, I don’t know what else is as good’. But if it gets worse and worse like Gillette does for me, I get out of System 1 and get into System 2. It can also happen if there is a compelling proposition that makes System 1 a little alert; ‘people are talking about it; there are so many ads I should try; it’s so cheap that it is worth a try, etc’
Sometimes like in the case of Gillette in my view, institutional imperative takes over and here it is a tendency of the firm to exploit the customer’s trust and lack of choice for improving profits. I know my former employer will not like my saying this, but I find it exorbitant to pay about Rs 700/- for a cartridge of 4 (with the pack saying it was Rs 825, I am giving you a big discount). So there is a case for Dollar Shave Club and others. However this example cannot be extended to say brands have no moat. Because if your brand has System 1 thinking wider / better than your competitor then you have a moat. Which is why knowing ‘unaided recall’ of brands is one of the most important thing to know in market research.
I don’t know if star rating is a big moat influencer, it must be to some extent but not sure.
Product superiority has different definitions for different people. So difficult to define for any category what is superiority. For some it could be taste, for some aroma, and for some, something I don’t know. And you cannot put everything without taking price through the roof (a general rule of thumb). So choices will be made. And brand should get that value proposition into System 1 thinking of the consumer, and prevent it from falling into System 2.
Our lazy System 2 leaves the purchase decisions involving small amounts to System 1 which goes by availability heuritic (ad we may have watched or a review we may have read), inconsistency avoidance (if I bought brand A last time, why should I buy brand B now? Does it mean I made a bad choice last time?) and so on and makes it easy for us. This is the very foundation of brands as you rightly pointed out.
However as @GSrikan pointed out, I see that a lot of modern products are able to build a brand quickly and most times spend less as they can do targeted marketing. Bigger brands survived mostly because they were the only ones that could afford airspace in the prime time. That was their biggest moat. I see social influence plays a bigger part in purchase decisions and a lot of online purchases rely solely on sorting by average customer review (I do it all the time too) and picking one from the top 1 or 2 after reading a few reviews (Very much a System 1 task). This somewhat evens the playing field for quality products that aren’t yet well established to take on big brands through quality and network effect. I think this effect could get bigger and bigger as more of our purchases move online. Branding as a moat might not be as strong now as it used to be in the age of tv.
OK, even for FMCG categories? It makes an impact on me when purchasing items where I am not sure of the brand, like a car wash, USB cable, charger. When I am aware of the brand, I ignore (HP DeskJet, Belkin power strip). While buying books where the subject and author are relatively unknown, ratings however have the biggest influence on me. My wife buys FMCG stuff online, but I haven’t seen her change brands or buy private label from earlier.
This presumes that higher rating is equal to better quality, which may not be true.
My own view is that to build a global brand like Coke that also lasts as long, takes time, and I am not sure new channels change it much. Maybe it does for some categories where the product is such a commodity that it doesn’t matter (like daily bread is, for me). What gets built quickly can also be displaced quickly by someone else.
Perhaps not for FMCG brands yet but I do see instagram brands do well for themselves in the FMCG space. But what a small upcoming brand can do, an established brand can do even better - See this for eg. What am saying that its not going to be as easy to retain mindspace as a brand because the 5/5 stars has perhaps a growing mindshare as well and might negate the power of your brand. More than the quality, its the social proof that more people are using the product (numbers of reviews/ratings) and are also happy with it (4.5 or 5 stars along with subjective opinions in the reviews) that could tilt a purchase decision.
I think brands survive because people choose the conventional options to avoid regret. They fear that the new/cheaper product may be inferior. It’s a classic case of representativeness heuristic.
Just because the conventional product is expensive it must be better.
It’s our brain that’s wired to associate price with value. We believe a high price necessarily translates to top quality.
In my limited understanding, people stick to the old brands to avoid regret.
Humans have more intense reactions to consequences arising out of action rather than inaction. Hence, if they choose a new product and it’s bad, the regret will also be more.
To sum it up, desire for regret and blame avoidance plays an instrumental role in a brand’s success.
Just my thoughts, please correct me if I’m wrong.
Here is more info about these products
KRBL is planning to launch a more branded product health segment (Hopefully rice related). Next year KRBL is planning to launch rice oil as per the video.
Thank you for the model and calculations. Is not 5% terminal growth rate high and is favorably effecting your valuation?
Some useful insights on basmati rice.
Hey guys, I was looking at the corporate presentation of KRBL and the research report given by Axis Direct. The export realisations mentioned in KRBL presentation for 2017 is 81 rupees, whereas in Axis Direct report, it is mentioned that the realisations have fallen to 74 rupees. How can that be true since the prices of Basmati is higher than last year? Numbers of either the report or the company are incorrect.
I don’t mean to pollute the KRBL board.
However, I’ve a question and I haven’t been able to get an answer on the Internet.
KRBL claims to be the world’s largest miller. But, an American company called Riceland also claims to be the largest miller.
Disclosure: No holding yet. Would like to participate.
Does anyone know about the status of the GST issue over the India Gate brand? Is the brand still paying 0% GST or 5% like other rice brands?
Certainly. The investment decisions should be based on the company’s performance.
However, when conflicting claims are made by two leading companies, I believe, we should place emphasis on finding the truth.
And, seldom do two people have the same views. Hence, we’ll have to agree to disagree. Nonetheless, thanks for sharing your views. It’s much appreciated.
The upper limit of terminal growth rate is the probable growth rate of the Economy after 10 years. I don’t think it is unreasonable to think India will grow at 5% 10 years from now.
That happened due to some patent stuff Rules where they did not get their brand registered. This link should give you detailed explanation : https://www.pressreader.com/india/hindustan-times-delhi/20170707/282106341671214
Unregistered brands will be paying 0%GST.
All India Rice Exporters’ Association and other brands had written to the FM for clarification on the GST issue. I could not find the latest update on news media.
according to this update from Axis Securities, GST is now charged at 5% on KRBL’s products after clarification from the govt.
If you listen to their concall, they have mentioned that 5% GST is charged on their products and hence there was a fall in India income.